Question

What is the tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of 28%?. A. 6.48%. B. 7.25%. C. 8.02%. D. 9.00%.

Answer 1

The tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of 28% is 8.02%.

Step-by-step explanation:

The tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of 28% can be calculated as follows:

1. First, calculate the after-tax yield. In this case, the after-tax yield is 9% * (1 - 0.28) = 6.48%.
2. Next, calculate the tax-exempt equivalent yield by dividing the after-tax yield by (1 - 0.28). In this case, the tax exempt equivalent yield is 6.48% / (1 - 0.28) = 8.02%.

Therefore, the tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of 28% is 8.02% (Option C).